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The 5 Red Flags From My First Turn-Key Real Estate Investment Failure

Sep 01, 2017

I learned a painful but crucial lesson from my first shot at Real Estate Investing.

After I learned the basics of Real Estate Investing, I thought I was ready to jump right into a deal. I got ahold of a turn-key provider and immediately started looking at deals. The only kind of analysis I did was subtract the mortgage from the rent and tried to see if that made any sense.

By the way, a turn-key investment property is simply a fully renovated, tenanted, managed, and ready to go investment.

Red Flag #1: Communication with the turn-key provider was terrible. They didn't seem to have their shit together and they dragged out every step.

Red Flag #2: They wanted me to buy with cash only. The reason this is a problem, especially since I was NOT able to see the property, is because a cash purchase would not require any inspections or appraisals. Therefore, I would never really know if my property was actually worth what I was planning on paying for it.

Red Flag #3: The purchase contract barely gave me any protection at all. There were really no contingencies allowing me to back out of the deal if there were any issues out of my control... I was basically operating on trust. Never good.

ALSO, put this little tip into your brain-housing group: when a purchase contract has parts hand-written, or the whole document is obviously re-copied, or just generally looks like someone wiped their ass with it... It's an unprofessional transaction and will probably end poorly for you. RUN.

Red Flag #4: The purchase price was too low. Don't get me wrong, it is totally possible to find an amazing deal for really cheap in a C class neighborhood in the midwest. But, if you are buying a C class property that was built over 60 years ago and has not been renovated in over 20 years, it probably needs at least $20-40K in renovation costs to make it a smart investment. A $55K price tag (for a DUPLEX!) is probably too low. It just doesn't make sense, and there was probably minimal renovation done.

Red Flag #5: The turn-key provider did not perform any noticeable renovations. This is something I found out AFTER I paid $600 for each appraisal of the two ~$55K properties I was trying to purchase. $1200 total just to find out if they were actually worth the purchase! Guess what... they did not appraise. Both appraisals came in around $40K... The hard money lender I was trying to use said: "we would not advise you purchase these properties, even if they did appraise."

WOW, writing all of that makes me hate myself. How stupid could I possibly be?

Not stupid... just not educated enough.

Whatever... I am okay with it. I learned how not to be an idiot, and now I can help out others with their first investments. 

Lesson Learned: For members of the military, turn-key investment properties can be a great investment opportunity... But you have to really trust the turn-key provider. 

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